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Solo 401(k) - A Self-Employed 401(k)

Learn about the tremendous advantages of a solo 401(k) plan.


While many of your friends working at big companies can take part in a 401(k) plan, you-as a self-employed person-may have thought it was impossible to get in on the action. While SEP-IRAs, Keogh plans, SIMPLE IRAs are options nearly uniquely available to the self-employed, you, too can participate in a 401(k) plan - a solo 401(k).

Who can establish a solo 401(k) plan?

A solo 401(k) or self-employed 401(k) is available to self-employed individuals or business owners with no employees (An exception is made if the only other employee is a spouse of the business owner.).

What is a solo 401(k) plan?

A solo 401(k) plan is just like a regular 401(k) plan. The only difference is that the person establishing the solo 401(k) can take advantage of some of the benefits of being the only employee.

What are the advantages of a solo 401(k) plan?

The primary advantage of a solo 401(k) is a greater limit on deductible contributions for smaller businesses. For example, the limit for most SEP-IRAs is 20-25% of net earnings from self-employment, yet the limit for the solo 401(k) can much higher. Currently, an individual can make a contribution of $16,500 even if that represents 100% of the net earnings. If there are additional net earnings, the taxpayer could contribute 20-25% of the total net earnings.

What is the deadline for establishing a solo 401(k)?

A solo 401(k) must be established by the end of the tax year, typically December 31.

What is the deadline for funding a solo 401(k) plan?

The deadline varies based on how the business is established (incorporated vs. unincorporated). Furthermore, each component of the contribution can have a different deadline. Nonetheless, the deadlines typically vary from the end of the tax year, at the earliest, to the extended due date of their tax return, at the latest.

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